SingTel - Recovery In Indonesia; Continued Losses From India

35%-owned Telkomsel benefits from a recovery in pricing since late-June, which has become more broad-based over time. However, we expect the 40%-owned Bharti Airtel to incur the third consecutive quarter of losses due to intense competition from Reliance Jio’s Monsoon Hungama offer.

Singtel intends to maintain ordinary dividends at 17.5 S cents for the next two financial years (FY19 and FY20), which provides a resilient dividend yield of 5.5%.

Maintain BUY. Target price: S$3.94.

WHAT’S NEW

Telkomsel – Pricing on the mend.

Competition intensified ahead of the deadline for mandatory pre-paid SIM cards registration by 30 Apr 18. Churn rate has normalised now that SIM card registration has been completed. Pricing has recovered since late-June after the Lebaran holidays.

Bharti Airtel – Hit hard by JioPhone.

Reliance Jio achieved a huge net addition of 37m subscribers driven by its Monsoon Hungama offer, which allows customers to trade-in any old phone for new JioPhone 1 by putting up refundable security deposit of Rs501 and paying Rs594 for a recharge plan of unlimited voice & data for six months (Rs99 per month). The promotion was undertaken to clear the inventory build-up for JioPhone 1. Subscriber base has expanded 82% y-o-y to 252m, the third-largest in India. ARPU was stable at Rs132 (Bharti: Rs105). Data usage per subscriber per month improved 3.8% q-o-q to hit 11GB.

It costs zero for customers as the security deposit initially, set at Rs1,500, is refundable after three years. Customers have to commit to a minimum top-up of Rs49 every month.

JioPhone runs the proprietary KaiOS operating system and provides access to popular apps, such as YouTube, Facebook and WhatsApp. Customers can make free calls using VoLTE technology.

JioPhone 1 is the top-selling feature phone in India.

JioPhone 1 will soon make way for JioPhone 2. JioPhone 2 has a 2.4-inch display and a full QWERTY keyboard, reminiscent of the BlackBerry. It went on sale since 16 Aug 18 at the price of Rs2,999 (US$41). JioPhone 2 was immensely well received and is already out of stock.

Amobee facing headwinds.

Revenue from digital marketing decreased 7.1% y-o-y in 1QFY19. Management explained that Amobee was affected by a pullback in marketing spend by 4-5 major customers.

Amobee faces competition from other programmatic advertising platforms, such as Trade Desk, MediaMath and AppNexus. We are concerned that Singtel may not be able to meet its guidance of mid-teens FY19 revenue growth for Amobee if the weakness in digital marketing persists.

EARNINGS REVISION/RISK

We maintain our existing earnings forecasts.

SHARE PRICE CATALYST

Singtel is the least affected by a fourth mobile operator in Singapore as overseas businesses accounts for about 70% of its bottom line.

Singtel is the largest and most liquid defensive stock listed on the Singapore Exchange and to trade at a premium.

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